One of the biggest challenges that a farmer is faced with in
Agriculture is cash rent dilemma. The
dilemma is a long run perspective. With
challenges including downturn in net returns for corn and soybeans and landowners
reluctant to reduce cash rents.

That’s when you need to ask yourself: if you expect to lose money in 2016 on a tract
of rented land, should you continue to rent the tract? Also how much of a premium can you pay to
retain control of a tract until net return prospects improve? And finally, how does paying a premium affect
your farm’s liquidity? Your premium is
equal to the market cash rent minus the breakeven cash rent. This is an issue that will occur for the next
several years. You also need to look at
your working capital at the beginning of the year. The focus is on cash rent premiums and
liquidity. In a webinar from Purdue's Center
for Commercial Agriculture has come up with a helpful tool to calculate long
term cash rent.

The tool which is a spreadsheet allows you to compute very
clearly what your premium is and how that would impact your liquidity. To help you get the correct results you will
need to input your net returns and working capital. To get to that you need to start with cost
budgets and be very accurate what your costs are. You also need to enter your revenue and
prices. The spreadsheet is set up for
Indiana and Illinois budget farms and also has built in scenarios for cost
budgets. It’s very critical to know your
local market. It also allows you to look
at your working capital changes over time.
You can download the excel spreadsheet tool here.

Finally, the spreadsheet helps land owners make people that
you’re working with better aware of how much the economics of agriculture have
changed this past couple years. If you
think about renewing a lease on a tract of land that you currently have or
think about bidding on a tract of land that might be coming up for rent in your
community, Purdue's
Center for Commercial Agriculture urges you to think about the long run impact
on your operation.